|TRENTON – Acting Attorney General John J. Hoffman announced today that New Jersey has entered into two separate but related multi-state settlements with the Education Management Corporation (EDMC), one of the nation’s largest for-profit higher education providers.
The first settlement resolves consumer fraud allegations that the Pittsburgh-based EDMC engaged in abusive recruiting practices and misled students about the cost of its higher education programs, student loan terms, graduation rates and other information. The second settlement resolves fraud allegations that the company provided unlawful financial incentives to members of its recruiting staff in violation of Title IV of the federal Higher Education Act.
Under the consumer multi-state agreement announced today, the company will forgive nearly $103 million in outstanding loan debt held by more than 80,000 former EDMC students nationwide. In New Jersey, the settlement will result in forgiveness of approximately $1.3 million in outstanding loan debt held by nearly 1,000 former students.
Among other terms of the consumer settlement, EDMC must enact a number of recruiting and enrollment reforms, must modify its business practices, and is banned from certain enrollment activity. For example, the company is prohibited from enrolling students in programs that do not lead to state licensure when state licensure is required for employment. EDMC also is prohibited from enrolling students in programs that, due to a lack of accreditation, will not prepare its graduates for jobs in their fields.
“Higher education offers a host of benefits for people looking to improve their lives, but we allege that EDMC took advantage of, and caused harm to, many students through deceptive recruiting practices and exaggerated claims,” said Acting Attorney General Hoffman. “Today’s consumer settlement is important because it not only provides a degree of relief for EDMC students who were left with unfulfilled promises and significant debt, but ensures greater accountability and transparency by the company going forward.”
EDMC has no physical campuses in New Jersey. The nearly 1,000 New Jersey students who will benefit from EDMC’s forgiveness of student loan debt were enrolled in online programs, although some may have traveled to the Philadelphia and New York City campuses of the Art Institutes International, a subsidiary. The EDMC settlement includes a total of 39 states and the District of Columbia. Under the settlement, EDMC does not admit to the conduct alleged by the participating states.
Among other terms, the settlement announced today will put in place a significant interactive, online financial disclosure tool required for all prospective students who utilize federal student aid or loans. The impending online system, called the Electronic Financial Platform (EFIP), is currently in the final stages of development by the federal Consumer Financial Protection Bureau (CFPB) and state attorneys general. Based on a prospective student’s individual data, EFIP will produce a detailed financial report that includes the student’s projected financial commitment, living expenses and potential future earnings.
Under the multi-state settlement, EDMC also must:
- Not make misrepresentations concerning accreditation, selectivity, graduation rates, placement rates, transferability of credits, financial aid, veterans’ benefits, and licensure requirements. EDMC shall not engage in deceptive or abusive recruiting practices and shall record online chats and telephone calls with prospective students.
- Provide a single-page disclosure to each prospective student that includes the student’s anticipated total cost, median debt for those who complete the program, the default rate for those enrolled in the same program, and the job placement rate.
- Require every prospective student utilizing federal student loans or financial aid to submit information to the interactive Electronic Financial Impact Platform, (EFIP) in order to obtain a personalized picture of the student’s project education program costs, estimate debt burden and expected post-graduate income.
- Reform its job placement rate calculations and disclosures to provide more accurate information about students’ likelihood of obtaining sustainable employment in their chosen careers.
Other conditions outlined in the settlement require that EDMC:
- Require incoming undergraduate students with fewer than 24 credits to complete an orientation program prior to their first class.
- Permit incoming undergraduate students at ground campuses to withdraw within seven days of the beginning of the term, or on the first day of class (whichever is later), without incurring any cost.
- Permit incoming undergraduate students in on-line programs with fewer than 24 on-line credits to withdraw within 21 days of the beginning of the term without incurring any cost.
- Require that its lead vendors, which are companies that place website or pop-up ads urging consumers to consider new educational or career opportunities, agreed to certain compliance standards. Lead vendors shall be prohibited from making misrepresentations about federal financing, including: describing loans as grants or “free money;” sharing students’ information without their consent, or implying that educational opportunities are, in fact, employment opportunities.
Under the settlement, students who are to receive automatic relief related to outstanding EDMC institutional loans must have been enrolled in an EDMC program with fewer than 24 transfer credits, withdrawn within 45 days of the first day of their term, and their final attendance must have been between Jan. 1, 2006 and Dec. 31, 2014.
The settlement agreement is expected to provide an average of $1,370 per person in debt forgiveness.
The second multi-state settlement announced today resolves a federal qui tam or “whistleblower” lawsuit brought against EDMC by a former employee.
The states of California, Florida, Illinois, Indiana and Minnesota intervened in the federal qui tam action, while New Jersey, Montana, New Mexico, New York, Massachusetts, Kentucky and the District of Columbia joined as non-intervening states.
Approximately $8.7 million paid by EDMC as part of the whistleblower settlement will be used to fund the multi-state settlement announced today. That amount includes the agreed-upon debt forgiveness for EDMC students in New Jersey and the other participating states, and the compensation to be paid to an Administrator, former U.S. Associate Attorney General Thomas Perrelli. Perrelli will independently monitor EDMC’s compliance with the injunctive terms of the consumer fraud settlement for a period of three years, and will issue annual reports.
“For many people in New Jersey and across the country, colleges such as EDMC are an attractive choice because of their online course offerings and other features,” said Acting Attorney General Hoffman. ”However, for-profit colleges have the same obligation that any other businesses operating in New Jersey have -- to treat consumers fairly, and to provide them with clear, accurate and honest information about their product offerings and terms. We are committed to holding accountable those who fail to do so.”
The consumer fraud settlement with EDMC was negotiated on behalf of New Jersey by Deputy Attorneys General Cathleen O’Donnell and Patricia Schiripo of the Division of Law’s Consumer Fraud Prosecution Section. The whistleblower qui tam action was negotiated on behalf of New Jersey by Deputy Attorneys General Nicholas Kant and Janine Matton of the Division of Law’s Government & Healthcare Fraud Section.